SIP Vs FD

Which is a Better Investment Option?

Individuals are always in a catch 22 situation when it comes to choosing between FD and SIP for investment. SIP is a mode of investment in Mutual Funds through which individuals can deposit small amounts at regular intervals. FD, on the other hand, is an investment avenue where people deposit a certain amount for a fixed tenure and get back the amount with interest during maturity. So, let us understand which is better between FD and SIP, SIP return calculator, Top SIP to invest, and much more.

What is a Systematic Investment Plan or SIP?

Systematic Investment plan or SIP is an investment mode in Mutual Funds which allows people to deposit small amount at regular intervals. SIP can also be referred to as a goal-based investment. SIP is one of the beauties of Mutual Funds through which people can invest as per their convenience. Through SIP people can plan to achieve many objectives like purchasing a house, purchasing a vehicle, planning for higher education, and much more. Though SIP mode of investment is available in many schemes, however, it is generally referred in the context of Equity Funds.

People can start their SIP investment with the amount as low as INR 500.

What is a Fixed Deposit or FD?

Fixed Deposit of FD refers to an investment avenue which is generally offered by banks and Post Office. In case of FD, people need to deposit a considerable amount as a one-time payment for a fixed time frame. Here, people get back their investment amount at the end of the tenure. However, people cannot break the FD during the tenure and if they try to break they need to pay some charges to the Bank. The FD income earns interest on the investment. This interest income earned is taxable in the hands of investors.

Which One to Choose?

Since SIP is an investment mode in Mutual Funds while FD is an investment avenue it itself; both of them show different characteristics. So, let us understand the differences between both of them.

Minimum Investment

The minimum investment in Mutual Funds through SIP mode of investment starts with INR 500. Therefore, it can be ensured that it does not pinch people’s pockets much. Moreover, the frequency of SIP can also be set as monthly or quarterly as per people’s convenience. On the other hand, in FD the minimum investment amount ranges between INR 1,000-10,0000. Since FD investment is through lump sum mode, therefore, people do not keep on Investing the amount.

Tenure

FDs being a traditional investment avenue are considered for both short-term and long-term investment. The tenure of FD can be 6 months, 1 year and can go up to 5 years. On the contrary, SIP is generally chosen for long-term investment. Since SIP is generally referred in the context of equity funds, the long-term investment would help you to earn maximum revenues. In addition, people can enjoy maximum benefits if they are held longer.

Returns

The returns on FD is fixed in the form of interest which does not change over a period of time. For the Financial Year 2017-18, the FD rates range between 6%-7% approximately if the investment is kept for one year. On the contrary, in case of SIP, the returns are not fixed as the returns are dependent on the performance of the underlying equity shares. However, if the Mutual Funds are held for a period of more than five years have given historical returns of more than 15%.

Risk Appetite

The risk-appetite of FD is considered to be less as compared to SIP. FDs are generally offered by banks. On the other hand, the risk appetite of SIP is more than the FD. However, if the SIP is held for a longer-tenure, the probabilities of loss reduces.

Liquidity

The liquidity in case of SIP is more as compared to FD. In case of SIP, if people redeem their investment they can get the money back in T+3 days for equity funds. However, in case of debt funds, the settlement period is T+1 days. However, in case of fixed deposits, it is not easy to redeem it. Even if people try for premature withdrawals, they need to pay some charges to the bank.

Taxation

The taxation rules in case of Mutual Funds and FDs both are different. In case of FDs, for the Financial year 2017-18, the interest earned is charged as per the individual’s regular tax slabs. However, as SIP is generally with respect to equity funds, therefore the tax rules related to equity funds are explained as follows.

For the Financial Year 2017-18, if the equity funds are sold after one year from the date of purchase, they are applicable for long-term Capital Gains which is not taxable. However, if these funds are sold before one year from the date of purchase then; it is subject to short-term capital gain which is charged at a flat rate of 15% irrespective of the individual’s tax slab.

Characteristics

SIP has a lot of features such as rupee cost averaging, the Power of Compounding, and so on, which is not available in case of an FD. So, let us see what do these characteristics mean.

1. Rupee Cost Averaging

In case of SIP, people invest in Mutual Fund units at regular time periods when the markets are showing different price behaviour. Therefore, when the markets are showing a downtrend, people can purchase more units and vice versa. Therefore, the purchase price of units gets averaged out due to SIP. However, in case of FD, this feature is not available as the amount is deposited for only one time.

2. Power of Compounding

SIP is applicable to compounding. Compounding refers to the compound interest where the interest amount is calculated on the principal amount and already accumulated interest. In case of FD, the interest amount is also subject to compounding.

3. Disciplined Savings Habit

SIP develops disciplined savings habit among individuals as people need to deposit money at regular intervals. On the contrary, in FD as people deposit the money only once, they may or may not develop a disciplined savings habit.

The table given below summarizes the differences between SIP and Fixed Deposits.

Best SIP to Invest for FY 26 - 27

SIP Return Calculator

The returns of SIP keep on varying. However, assuming the historical rate of returns being 15%, let’s see how the SIP investment of INR 1,000 grows over a period of 12 months.

Mutual Fund SIP Calculator

FD Calculator

The FD rates also keep on varying from bank to banks. However, assuming the interest rate to be 6%, let us see how the FD will perform over a period of 12 months if the investment amount is INR 1,000.

How to Invest in MF SIP Online?

1. Open Free Investment Account for Lifetime at Fincash.com.

2. Complete your Registration and KYC Process

3. Upload Documents (PAN, Aadhaar, etc.). And, You are Ready to Invest!

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Conclusion: SIP or FD

To conclude, it can be said that SIP has more advantages as compared to FD. However, it is always advised to people that they understand a scheme’s functioning completely before investing. In addition, they can even consult a personal financial advisor to ensure that their investment is safe and their objectives are met.